Morning Bid: Goldilocks or gridlock?

A look at the day ahead in European and global markets from Ankur Banerjee

Investors are wagering that gridlock in Washington after the stunning sweep by Democrats in the US midterm elections will be good for markets, as hopes rise of a possible end to the crippling eight-month-long war in the Middle East.

Brent crude futures slumped to a two-month low below $100 per barrel as the election results left a weakened president facing a choice between a negotiated exit and a riskier escalation.

However, President Donald Trump said the Iran war has been worth it, despite ‌acknowledging its role in the Republicans' election losses. "The ​Iran thing we had to do, and ​we continue to do it," he told ⁠reporters.

The US-Israeli war with Iran, which started at the end of February, has sent shockwaves across the global energy markets, driven up prices and upended the global rates outlook. Many of the major central banks have raised interest rates this year to tackle inflation.

The sharp drop in oil prices this week helped ease pressure in some of Asia's unloved stock markets, including India, Malaysia and Hong Kong.

Chipmakers, though, fell sharply again with South Korea's KOSPI down 4.8%, while Taiwan stocks slid 2.6%, as investors fret over the fate of massive spending on data centers, one of the battleground issues in the election.

Lower oil prices also drove Treasury yields lower to a two-month low, leaving the US dollar struggling against most major currencies. The euro was hovering around its highest level since early October.

Sterling hugged a seven-week high as traders braced for a policy decision from the Bank of England, where the central bank is widely expected to raise rates for the first time in three years due to mounting inflation pressures from the US-Iran war, following the path taken by all its main peers.

Key developments that could influence markets on Thursday:

BoE policy decision, October S&P PMI for Germany, France and euro zone

(Editing by Sonali Paul)